Interesting thoughts James. In my opinion, the indifference of markets to economic developments (not just trade but also recession risk) reflect the increasing disconnect between financial markets and the real economy.
The balance sheet structure of firms, particularly the mega caps with huge cash piles and captured markets, provides them (and their share price) with natural insulation in the event of exogenous shocks. This might explain why markets don’t seem to give a hoot about what is happening in the real world.
Hey! Interesting take - the huge amounts of cash these firms have seems really quite distortive, probably including some distortions to monetary policy too. The interactions between them also create some weird dynamics (eg them all buying loads of chips from nvda which are annual rev for nvda but depreciated over years for the other firm - ie a mag7 infinite profit loop)
I think there's plenty of reason to believe that these firms are less sensitive to the real economy, but then again perhaps we see a correction which makes the idea that the real economy doesn't matter as much look silly in hindsight....
The challenge is that this call about whether markets and the economy are interlinked or not is a major financial call…
If there is still a strong link between the real economy and markets then you are probably correct in wanting to get out sooner rather than later.
But if the link has been severed and people don’t realise, investors could end up sitting on the sidelines for a long time while markets just melt upwards.
Interesting thoughts James. In my opinion, the indifference of markets to economic developments (not just trade but also recession risk) reflect the increasing disconnect between financial markets and the real economy.
The balance sheet structure of firms, particularly the mega caps with huge cash piles and captured markets, provides them (and their share price) with natural insulation in the event of exogenous shocks. This might explain why markets don’t seem to give a hoot about what is happening in the real world.
Hey! Interesting take - the huge amounts of cash these firms have seems really quite distortive, probably including some distortions to monetary policy too. The interactions between them also create some weird dynamics (eg them all buying loads of chips from nvda which are annual rev for nvda but depreciated over years for the other firm - ie a mag7 infinite profit loop)
I think there's plenty of reason to believe that these firms are less sensitive to the real economy, but then again perhaps we see a correction which makes the idea that the real economy doesn't matter as much look silly in hindsight....
The challenge is that this call about whether markets and the economy are interlinked or not is a major financial call…
If there is still a strong link between the real economy and markets then you are probably correct in wanting to get out sooner rather than later.
But if the link has been severed and people don’t realise, investors could end up sitting on the sidelines for a long time while markets just melt upwards.